What is Currency Trading?

What is currency trading? I’m sure that you’ve asked yourself this many times. It is a complex process involving the purchase and sale of money from different countries for a profit. Commonly known as foreign exchange, or FOREX, the sale of currencies can greatly alter the strength of a particular country’s economy and currency price. All currencies have a value relative to the value of other world currencies. Thus, any changes in the price of one country’s money will impact on other countries. This can have very serious effects if it incurs a loss of value for that particular country’s money.

So if your friends ask you “what is currency trading?” you can provide them with two answers. There are two main ways that FOREX happens. First, when tourists or visitors to a country enter its borders they must buy some of that country’s money in order to buy things. When they buy the currency, they normally do so at a higher rate than the actual value of the money, and so that country earns a profit. Similarly, when they leave they need to sell any excess currency back to the original country, allowing the traders to make a profit again. The more tourists that come to a country the more able that country is to make money from foreign exchange.

Secondly, there is large scale trading of currency, normally between banks and large lending institutions. In this type of trading, investors look at whether it a particular currency is likely to be strong or weak, and they buy and sell it accordingly. This is called speculation. Often this is based on detailed research into the political climate of a country, and any serious country by country issues. Recently smaller investors and traders have been allowed to participate in this form of trading, but this is relatively new. Now you know the answer to the question “what is currency trading?”